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By David Maclaren Kiiza
Oil discovery in Uganda presented a unique opportunity to transform the economy through infrastructure development and poverty alleviation. However, the Exploration and Production (E&P) or Upstream sector has experienced stupendous speculation, zealous prospects and important farm downs or asset rotation.
The dominant key players in the upstream sector are foreigners because of their investment capital muscle and technological capacity which left out most of the Ugandan local service providers and professionals who lacked the petroleum industry knowledge.
We can safely assume that most companies and individuals had prepared for labor support functions when production starts, but with consistent shifting of production deadlines from 2011 to 2016 to 2021 and currently to 2025, Ugandans have in most cases failed to share in much with foreign investors about the oil and gas benison.
Upstream foreign companies in Uganda include French firm Total E&P Uganda, Chinese firm China National Offshore Oil Corporation (CNOOC), and U.K. firm Tullow with production licenses to develop Uganda’s oil reserves for export. The 2018 National Content Policy for the Petroleum Subsector in Uganda defines it as ‘the value added or created in the Ugandan economy through the employment of Ugandan workers and the use of goods produced or available in Uganda and services provided by Ugandan citizens and enterprises.
However, National Content simply means any and all content that may be accessed on-line by customers through the National Area. The Uganda’s definition of National Content refers to concepts of local ownership, local employment, and local creation of value addition. Ugandan regulations cover requirements on employment, training, and procurement but also on technology transfer and local investment in research and development.
Whereas the focus was on National Content; the “Local Content” is the value that an extraction project brings to the local, regional, or national economy beyond the resource revenues. Countries can encourage local content through requirements and targets written in national laws and individual contracts. Parliament has passed the National Local Content Bill, on Tuesday, 06 September 2022 intended to foster promotion of local content in all but the oil, gas, and petroleum sector.
According to Estella Karuhanga, National Content Manager, Mota-Engil Uganda, the bill seeks to impose local content obligations on a person using public money or utilizing Uganda’s natural resources or carrying out an activity requiring a licence to prioritize Ugandan citizens and resident companies owned by citizens in public procurement.
Key among them being section 4 of the bill that tasks a local content entity to give preference to goods which are manufactured in Uganda as well as services which are provided my Ugandan entities.
Oil and gas industry foreign investors industry must follow a clear plan for management transition and service provision to locals over a structured period despite the profit and loss to be incurred by their investment. This change of management will likely cause challenges for investors in relation to return on investment and retaining the most skilled talent required for management in the E& P sector.
It is also imperative to note that some of the activities in the upstream sector are one offs and rather than invest in them, most companies outsource these components to highly specialized international mercenaries. It would also not be a wise move for Ugandan companies and individuals to specialize in products or services which only exist as a stint of the oil and gas production life cycle extension to mid and downstream sectors providing more realistic options of absorbing local skillsets such as small medium enterprise engineering, supply chain, legal, environmental specialists, hydrocarbon retailing and human resource management with the Dutch disease and oil curse impacts, Uganda is at a high risk and must be affirmative in curbing such vices that could cripple gains in natural resource development. Despite training Ugandans in oil and gas related activities since 1986, a minimal absorption of such skillsets into the structures of foreign companies is low partly because most of the anticipated work is taking place outside the scope of a strong local content regime.
Some of the market players in Uganda such as CNOOC, Total and Tullow Oil have conducted market surveys into the oil and gas skills needs. The industrial survey data reveals that the sector will employ 13,000 people in the construction phase (within 3 to 5 years), which will drop to 3,000 in the operational phase (20 to 30 years). The proportion of the manpower required will be 15% engineers and managers, 60% technicians and crafts persons and 25% unskilled workers3. This survey identifies apparent capacity gaps in the extractives sector in Uganda such as limited qualified civil crafts persons, drivers and mechanical technicians.
It is important that local content requirements are structured in a way that allows maximization of local opportunities where governments seek to endure that investment projects generate employment and business opportunities for the national economy as a way of promoting local business capacity. The investors, through local content look at getting a stronger social license to operate in the host country to incorporate some trade-offs in the contracts of Product Sharing Agreements for the limitations introduced through local content11.
Local content is best understood by looking beyond the extraction itself but policies and laws which govern the entire oil and gas value chain. The oil and gas sector purchases inputs (both Labor and the outputs of other sectors), which are either supplied domestically or imported. Imported inputs constitute a leakage, while domestic purchases provide further benefits to the economy but there’s need for policies to bolster local content.
Arguments fronted for the promotion of local content in oil and gas activities are categorized into three, increasing value-added, market failures/externalities and social objectives. Where countries have small industrial sectors, there is hope for boosting the economy through policies which increase local content through value addition being achieved through economic diversification to avoid the Dutch disease syndrome and resource curse through addressing the volatility of commodity prices, market imperfections to avoid inefficient specialization in non-tradable goods.
It’s not factual or truthful that Ugandans will benefit from local content if the capacity of Ugandans to contribute to the skills’ pool of the petroleum sector if it is improved and harnessed. The training must expand beyond straight jacket extractives training to support industries which will be required at varied stages of oil and gas production. National Oil and gas Policy objective 7 presents the need to ensure optimum national participation in oil and gas activities whereas objective 8 relays on the need to support strategies for development and maintenance of national expertise in the oil and gas sector.
Uganda’s local content main drive is the procurement of goods and services from Ugandan suppliers. The National Content Regulations defines “Ugandan company” for purposes of section 125 of the Act means a company incorporated under the Companies Act, 2012 and which; (a) provides value addition to Uganda; (b) uses available local raw materials; (c) employs at least 70% Ugandans; and (d) is approved by the Authority under regulation 9(4).
How does this aspect reconcile the incorporation matter into the assumption that the companies in question ought to be owned by Ugandans? Another question to ask is whether the controlling interest of such company adequately represent Ugandans? However, Section 251 of the Companies Act says that foreign companies are companies incorporated outside Uganda which run business in Uganda. Does that by default imply that a company incorporated in Uganda is a Ugandan company or merely a company incorporated in Uganda?
The benefits of petroleum exploitation is in the development of domestic suppliers of goods and services which is more plausible than achieving a sizeable headcount in direct employment in the sector. Section 125(1) provides that goods may be produced or made available in Uganda, by anyone, not necessarily Ugandan citizens or companies and that services must be rendered by Ugandan citizens and companies while section 125(2) provides for the supply of goods and services, which are not available in Uganda.
The implication here is that suppliers of goods and services available in Uganda are not subject to the joint venture requirement and may be supplied by wholly foreign entity subject to the preference in subsection (1). The unanswered question stills remain as to when can goods and services be said to be unavailable in Uganda?
Looking at the local contents on the African continent.
Kenya’s Petroleum(E&P) Act provides for preference to employ and train Kenyans in petroleum operations and to give preference to use of products, equipment, and services locally available. Production Sharing Agreement/Contract can only be signed by companies incorporated or registered in Kenya. In this, prices, quantities, quality, and timelines of delivery are comparable with non-Kenyan nationals/suppliers.
Angola’s concept of “Angolanization”, requires companies to have a workforce consisting of at least seventy percent nationals and majority holdings in the oil companies. Oil companies are required to submit a plan to the Ministry of Petroleum annually detailing how they plan to achieve “Angolonization” targets.
The Minister annually publishes consumer goods of national production to be used in the support services to oil activities with Angolan companies being preferred in competitive tenders for goods and services provided their bid(s) is not ten percent more than the foreign bids. Goods which do not require substantive investment and expertise are reserved for Angolan companies and goods which require considerable investment injection and technology may be provided by Angolan companies or by joint ventures of Angolan or foreign companies.
Nigeria’s 2010, Oil and Gas Industry content Development Act, aims at providing for the development of Nigeria content plan, for supervision, coordination, monitoring, and implementation of related matters. It’s definition of a “Nigerian company” is one formed and registered in Nigeria in accordance with their Act and within fifty one percent equity shares held by Nigerians. The composition of management positions by expatriates is capped at five percent for a period of four years within which a Nigerian should take over. Some services are ringfenced for Nigerians.
The Ghana local content policy of 2010 and the Petroleum Commission Act, 2011 had an objective to achieve ninety percent Ghanaian participation by the year 2020. The Oil and Gas Business Development and Local Content Fund are set up to support development of local capacity, education, training, and research. Priority is given to local independent operators in the award of oil blocks, oil field licenses and other relevant projects. Preference is given to bids with the highest Ghanaian content and non-Ghanaian owned entities must have a five percent citizen interest in exploration and production.
Uganda should build capacity for training institutions to churn out competent skills relevant for the oil and gas sector and other support industries. This should include revision of curricular to include basic oil and gas components to inform career development and talent channelling.the need for more transparency and inclusion in decision making regarding, fiscal incentives, tax regimes, Production Sharing Agreements / Contracts, royalties, and compliance by investors.
The author is a Civil Eng, Statistician, & Petroleum Engineer
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